Securitization of sales participation certificates

ABSTRACT

The invention relates to financial products that provide a return that is a function of future sales/revenues, preferably gross sales/revenue, over a specified period of time. One embodiment of a method for creating such a financial product includes providing standard forms to an issuer and underwriter and standard terms to an issuer and investors. The terms to the issuer include providing capital to the issuer in exchange for a return that is a function of future sales over a specified period of time. The process further includes creating instruments representing investment in the financial product. The process creates the instruments in sufficient numbers and in appropriate denominations to facilitate trading in the financial product.

FIELD OF THE INVENTION

The invention relates to a new type of security and, more particularly, to securities that provide a return that is a function of future sales/revenue, preferably gross sales/revenue, over a specified period of time.

BACKGROUND OF THE INVENTION

Large firms, can raise funds in a variety of ways including: (1) borrowing from banks; (2) issuing their own obligations directly to investors; and (3) issuing their obligations to an entity that in turn issues its own obligations to investors. Securitization can impact each of these modes of raising funds and has become an efficient and inexpensive source of capital for businesses.

The parties to securities transactions are called issuers and investors. Issuers sell and investors buy and trade in securities with the help of market intermediaries. Underwriters distribute securities from issuers to investors. The initial sale of securities from issuers to investors is termed the primary market. Broker-dealers participate in, or maintain, secondary markets in which investors trade among themselves in securities. Tamar Frankel in Chapter 1 of Securitization, Structured Financing, Financial Asset Pools, and Asset-Backed Securities, incorporated herein by reference in its entirety, points out that a variety of securitized loans exist including mortgages, auto and light truck loans, credit card and trade receivables, computer leases and insurance premium loans.

One can describe securitization to date as the sale of financial instruments, representing ownership interests in, or secured by, a segregated, income-producing asset or pool of assets. The securitization transaction reduces or reallocates certain risks inherent in owning, or lending against, the underlying assets. The securitization transaction also ensures that such assets are more readily marketable and, thus, more liquid than ownership interests in, and loans against, the underlying assets.

Securities and debts are both obligations by one party to another. A primary distinction between securities and debts is that debts are less amenable to trading than are securities. The form, amounts, and terms of debts are negotiated between the lender and borrower and, as such, do not meet the conditions necessary to create active securities markets in them. Such markets need: 1) standard forms and terms rather than custom-made instruments; 2) the provision of instruments in numbers and denominations to facilitate trading; and 3) relatively low-cost information about the underlying assets. Debts lack these attributes.

While securitization brings greater liquidity to the markets and allows participants to better allocate the risks involved, many securities do not allow the investor to easily or fully inform himself as to his current financial position as determined by the securities. With respect to bonds, only the prices of on-the-run treasury bonds are readily available to market participants because there are so many individual bond issues traded (on-the-run treasury bonds are recently issued treasury bonds), and corporate debt issues have prepayment, conversion, roll-over and other features that are difficult to evaluate. With respect to equity or stocks, it is a demanding task to understand the accounting practices that generate the earnings per share figures used to value equity securities. The Association for Investment Management and Research (www.AIMR.com) requires members to successfully undertake years of courses and exams before it will award the practitioner with its Chartered Financial Analyst (“CFA”) designation. Most CFA's work for large money management organizations. Thus, there is a need for financial products that provide an investor with easily obtainable and verifiable knowledge about what the investor is buying.

SUMMARY OF THE INVENTION

The invention relates to financial products that provide a return that is a function of future sales/revenues, preferably gross sales/revenues, over a specified period of time. As opposed to asset-backed securities, securitization in this instance represents property interest in the stream of payments representing an organization's sales or revenues. Thus, in a preferred embodiment, there are no assets segregated as collateral for this security. One embodiment of a method for creating such a financial product includes providing standard forms and terms to an issuer and to investors. The terms to the issuer include providing capital to the issuer in exchange for a return to the investor that is a function of future sales of the issuer over a specified period of time.

According to this embodiment, the terms to the investors are non-negotiable and there is no asset or collateral set aside to insure repayment of the investor's capital because the security expires worthless at maturity. Investors investing in the financial product provide capital to the issuer. Information about the issuer's obligations pursuant to the above-referenced terms comes at a low-cost relative to obtaining information either about a borrower in a conventional commercial loan context or about the earnings accruing to an account of an equity investor. The process further includes creating instruments representing investment in the financial product. The process creates the instruments in sufficient numbers and in appropriate denominations to facilitate trading in the financial product.

BRIEF DESCRIPTION OF THE DRAWINGS

The foregoing and other objects, features, and advantages of the invention will be apparent from the following description when read together with the accompanying drawings.

FIG. 1 illustrates one embodiment of a method according to the invention

FIG. 2 illustrates the relationship between issuers, market intermediaries and investors in the primary market;

FIG. 3 illustrates the relationship between investors, broker/dealer(s), and possibly an exchange in the secondary market;

FIG. 4A illustrates one embodiment of a web site for generating forms for submission to the Securities and Exchange Commission (SEC) in association with performing the method of FIG. 1;

FIG. 4B illustrates an example of a profit and loss statement for a company that has raised capital using the method illustrated in FIG. 1, the profit and loss statement being a part of the web site of FIG. 4A; and

FIG. 5 is a block diagram illustrating one embodiment of a computer system for implementing methods of the present invention.

DETAILED DESCRIPTION OF THE INVENTION

The invention relates to a new type of security or financial product, and, more particularly, to financial products that provide returns that are a function of future sales/revenues, preferably gross sales/revenues, over a specified period of time. For present purposes, this type of financial product is referred to as a securitized sales certificate or simply as a sales certificate. Also for present purposes, the term sales and the term revenues are used interchangeably and are meant to refer to a firm's sales or revenues as reported on a firm's income statements. This invention contemplates such sales reports to be any of gross, net of promotional discounts, and/or sales that have been booked for which the resulting income has been, or has yet to be, received. Embodiments of the invention relate to securities that provide a return that is a function of future sales as distinct from the securitization of trade receivables that are already on the books.

With reference to FIG. 1, one embodiment of a method according to the invention includes providing 100 standard forms to an issuer and to an underwriter and standard terms to an issuer and to investors. The terms to the issuer include providing capital to the issuer in exchange for a return that is a function of future gross sales/revenues. The method further includes determining 102 from the issuer, e.g., from standard forms, the amount of capital desired and calculating an appropriate function, e.g., percentage, of sales to achieve the desired capital contribution to the issuer.

Based on an appropriate function, e.g., percentage, of sales, the method creates 108 instruments in sufficient numbers and appropriate denominations to facilitate trading in the underlying financial product. Approximately concurrent with, and in one embodiment prior to, the creation of instruments, the method includes obtaining 106 opinion of counsel, based on the standard terms and completed standard forms, hiring 110 a registrar to keep the books, and hiring 112 a trustee to collect and distribute revenues owed. Finally, the method includes conducting 114 a public or private offering.

Thus, one embodiment of a method according to the invention securitizes a portion of the proceeds of future gross sales/revenues, an item that is easily audited, turning it into property that can be traded in a secondary market on an exchange, should an exchange arrange to trade in these securities, or over-the-counter (OTC). An OTC security is a security that is not traded on an exchange, usually due to an inability to meet listing requirements. For such securities, broker/dealers negotiate directly with one another and/or investor(s) over computer networks and by phone.

One embodiment of a method according to the invention includes creating a financial product by providing standard forms and terms between the issuer and the trustee who is the fiduciary representing the interests of the investor, and between the issuer and the underwriter who is to be paid for underwriting the issue. To clarify this point, typically issuers sell and investors buy and trade in securities with the help of market intermediaries. In the primary market, illustrated in FIG. 2, underwriters distribute securities from issuers to investors. In other words, an issuer provides the issuer's obligation to the underwriter in exchange for a commitment of capital. The underwriter in turn provides the issuer's obligation to investors in exchange for money. As noted above, the terms of the issuer's obligations, when issuing this security, include providing a return that is a function of future sales/revenues over a specified period of time. The trustee then collects and distributes revenues owed pursuant to the issuer's obligations outlined in the standard forms and terms.

In the secondary market, illustrated in FIG. 3, a broker/dealer trades securities for money with investors. Thus, as illustrated, generic investor I can sell sales certificate(s) to a broker/dealer for money and generic investor 2 can purchase sales certificate(s) from the broker/dealer for money. The broker/dealer typically prefers to end each trading day with no inventory, i.e., with longs equal to shorts. In addition, if available, the broker dealer can trade as agent for investors on an exchange.

In one embodiment, the terms for the security are non-negotiable by the investors. One achieves the creation of instruments representing investment in the financial product by forwarding completed/executed forms and the terms of the initial public offering to a registrar who then keeps the books. In one embodiment of the invention, the forms and terms include instructions to the registrar as to how many instruments to issue to whom and in what denominations. In other words, the underwriter instructs the registrar as part of the process of conducting an initial public or private offering (IPO) to issue sales certificates to investors after the underwriter receives SEC approval and sufficient commitments from investors in the IPO.

An entity, e.g., an exchange or broker/dealer, involved in trading of a financial product according to the present invention publicizes the trades. This publicity reduces the cost of, and enhances the transfer of, information among market participants. The exchange (if there is one) or the broker/dealer involved in the trade has an interest in publicizing the fact that it is the market for the security in question; this interest is related to the recognized phenomenon that volume in trading often leads to further volume in trading. Properly publicized trading prices for financial products according to the present invention will generate less confusion and lower transaction costs than those experienced in the current bond markets. Evan Schulman and Charles Polk discuss transaction costs experienced in the bond markets in “Enhancing the Liquidity of Bond Trading,” The Handbook of Fixed Income Technology, Edited by J. Rosen and R. D. Glisker, The Summit Group Press, pp.185–194, incorporated herein by reference in its entirety.

Investors want to have greater knowledge of the underlying value or earning power of their investments than what is currently available. With respect to bonds, only the prices of on-the-run treasury bonds are readily available to market participants because there are so many individual bond issues traded. With respect to equity or stocks, recent reports of difficult to understand, and perhaps deceptive, accounting practices in large publicly-traded companies demonstrate the difficulty of delivering to the investor information relevant to valuing equity instruments. Compared to bonds and stocks, a financial product according to embodiments of the invention provides an investor with easier to understand and easier to verify information about what the investor holds or is buying or selling. Thus, using financial products according to embodiments of the invention, issuing firms should be able to access capital at a lower rate than available through conventional instruments. All things being equal between two financial products, an investor will pay more for the financial product about which the investor has greater knowledge, since greater knowledge implies less uncertainty about the risks involved.

In one embodiment, the underwriter issues sales certificates under an Opinion of Counsel pursuant to servicing agreements between the underwriter, trustee and the issuer. A registrar keeps the books and a trustee monitors the contract/servicing agreement and collects and distributes the revenues owed to the investors. Keeping the books includes taking in the above-referenced standard terms and forms and creating instruments, whether virtually or physically, representing investment in the associated financial product. The registrar follows the transfer instructions of either the exchange, if there is one involved, or the recognized broker(s)/dealer(s) and keeps track of who owns the instruments. The trustee and registrar may be the same fiduciary entity. In one embodiment, the issuers, the broker(s)/dealers, or the exchange can instruct the registrar to use book entry to help keep costs down. Book entry is the name given to a process where ownership and transfer of securities occurs in the books maintained by the registrar. No physical representation of ownership, such as stock or bond certificates is delivered to the investor.

Advantageously, embodiments of the invention ease the burden of auditing the activity of the issuer. The investor or those acting on behalf of the investor, e.g., analysts, need only examine the gross sales/revenues of the issuer. Thus, investors need no longer attempt to understand, or rely on the representations of others regarding the put and call options imbedded in corporate debt instruments, or the difficult to understand, and sometimes varying, accounting practices involved in determining a firm's earnings. As with all security transactions, taxable investors will need to keep records of transactions for capital gains purposes and, depending on accounting rules, may be able to depreciate their cost basis over the life on the instrument given that, in one embodiment, it expires worthless. By expiring worthless what is meant is that there is no repayment of principal, there are no balloon payments at maturity, and the issuer does not guarantee the investment with collateral or assets other than a guarantee of a specified function of future sales for a period of time.

Furthermore, embodiments of the invention provide transparency of trading, i.e., the investor can relatively easily determine the value of an instrument. Facilitating the creation of standardized instruments in sufficient quantities leads to ease of price reporting and hence the transparency of trading. In addition, embodiments of the invention may provide a tax advantage to the issuer in that accounting rules may allow the issuer to pay these obligations out of pre-tax gross sales/revenues. Interestingly, F. Modigliani and M. H. Miller, in “The Cost of Capital, Corporation Finance and the Theory of Investment”, American Economic Review, 48 (June) 261–97, incorporated herein by reference in its entirety, indicate that the debt-equity mix does not affect the value of a firm unless its tax liability is altered. This phenomenon is due to the fact that financing, in and of itself, does not alter a firm's earnings stream or the earning stream's present value. However, the additional transparency of the payoff from the invention's instrument should decrease the risks borne by investors due to the agency problems faced by management and the firm's accountants, and so increase the present value of the firm. Additionally, the instrument's expected increase in liquidity versus debt issues should decrease the price concession required to entice a buyer should the investor have to sell the security before maturity. This increase in liquidity should also increase the present value of the firm.

The invention stands in stark contrast to the opaqueness of equity earnings as exemplified in reports of recent accounting irregularities in large publicly-traded companies and with the involvement of at least one large accounting firm. According to embodiments of the invention, publicly available information imbedded in a firm's disclosure statements and the ease of auditing a firm's sales/revenue figures regulates the sales certificates markets provided by the invention.

More explicitly, enumerated benefits of embodiments of the invention include:

To the Issuer:

-   -   1.) In one embodiment, there is no repayment of principal (the         security is self-eradicating). There will be no sinking funds         and no balloon payments at maturity and there is no asset or         collateral set aside to insure repayment of the investor's         capital. Thus, according to present accounting practices, it         appears that the issue can be off balance sheet. In other words,         it appears that the firm can treat the sales certificates the         same as a lease because the sales certificates, like simple         leases, expire worthless at maturity. Sales certificates would         be visible to investors because payments to the         holders/investors of the sales certificates are a pre-tax charge         to the firm and would feature prominently in the firm's income         statement. Further, the existence of a sales certificate         liability would be indicated by a footnote reference in the         firm's balance sheet, similar to the treatment of the firm's         lease obligations. In the event that according to accounting         practices the issue cannot be off balance sheet, the issuer's         profit and loss statement simply changes accordingly.     -   2.) There is no need to give up ownership to obtain financing at         the discount rates that apply to growth vehicles.     -   3.) The firm can use the sales certificates to generate a         continuous flow of funds (capitalizing future sales), if         required. In other words, the firm can generate a continuous         flow of funds by using rollovers, i.e., by re-capitalizing         future sales as old issues expire.

To the Investor:

-   -   1.) Investors have the ability to participate in a firm's sales         directly; they no longer need to be the residual claimant. The         invention gives the investor a clearer understanding of results         of the investment.     -   2.) The investor need not evaluate the imbedded options involved         in fixed income investing: there are no call or put prepayment         features. Stated another way, corporate bond issues are         complicated financial instruments. They usually have prepayment         clauses that are really call options. The borrower can exercise         the prepayment clauses/call options to his advantage. Bonds also         represent a put option in that the borrower can put the company         or its assets to the lender when it is in the company's interest         to do so.     -   3.) According to embodiments of the invention, investors can         purchase, either directly or through pools or mutual funds that         invest in sales certificates, diversified Baskets of High         Cash-Flow vehicles (with expected growth if desired).     -   4.) Investors have the choice to concentrate their investments         by investing in (a) specific firm(s) or using sector funds that         invest in sales certificates, etc.     -   5.) Investors have available an alternative inflation hedge as         opposed to Treasury Inflation Based Securities which reflect         only the government calculated consumer price index (CPI). In         other words, if inflation occurs, gross sales/revenues may also         inflate, potentially providing investors of sales certificates         with commensurate returns.

To the Underwriter:

-   -   1.) The underwriter deals in simple standard contracts. Such         standard contracts result in lower underwriting costs than         current customized fixed income contracts.     -   2.) The underwriter enjoys a continuous flow of business due to         refinancing as earlier issues mature.     -   3.) The adoption of embodiments of the invention as a method of         raising capital provides the potential for substantial         refinancing activity.     -   4.) Sales Certificates are a complementary security and do not         supercede equity. However, Sales Certificates may change the         value of equities. Once Sales Certificates issue, the incentives         of the equity holder and the Sales Certificate holder are         aligned, if the percentage of participation is below a few         percent of sales; both holders desire increased sales. Sales         Certificates provide debt markets with competition

This invention's securitization of future sales/revenues competes with currently available securities, especially fixed income securities. Embodiments of the invention contemplate a standardized set of high cash flow securities that competes with the fractionalized over-the-counter (OTC) bond market. Evan Schulman and Charles Polk discuss the fractionalized OTC bond market in the above-noted article “Enhancing the Liquidity of Bond Trading,” The Handbook of Fixed Income Technology, pp.185–194

It may be argued that securities according to the invention also provide competition for institutions that factor sales. Factoring companies (www.cfa.com) offer client firms cash for trade or sales receivables. They discount the receivables in question according to current interest rates and the risks of collecting. However, the sales the factoring companies discount are actual as opposed to future sales, and firms issuing sales certificates may still use the services of factoring companies to collect the revenues owed.

With reference to FIGS. 4A and 4B, one embodiment of a method according to the invention further includes a web site and/or non web-based systems for issuers or underwriters to register their offerings. A web site is advantageous to the extent it provides convenient, ubiquitous access to authorized users. However, the present invention also contemplates the use of non-Internet based access. Using encryption and password protection, the web site allows a potential issuer and/or an underwriter to provide relevant information. The web site provides, and optionally completes, initial public or private offering forms 116 for submission to the SEC. In one embodiment, the forms are SEC approved.

In the illustrated embodiment, the appropriate party, i.e., the user, enters the Issuer's Name 118, the proposed Issue Amount (e.g., in millions of dollars) 120, the issue's Maturity or the years to Maturity 122, the Current Sales of the Issuer 124 and the Underwriter Fees 126. The user then enters the Estimated Sales Growth Rate 128 and Discount Rate 130; or the user may enter the sales (absolute dollar value or percent growth) and/or discount data by year, quarter or month.

Given this input, according to one embodiment, a program accessed via the web site calculates the Percent of Sales 132 Required to Service this Issue This is an iterative calculation (using a bisecting search or equivalent technique) that finds the discounted percent of sales with a Present Value equal to the Issue Amount.

Should the user wish to compare the costs of this issue with standard debt issues, they may enter the issuer's Operating Margin 134 and Corporate Tax Rate 136 along with the debt issue's Sinking Fund Obligations, if any. The program accessed via the web site then calculates Profit and Loss Statements for the Issuer for the years the Sales Certificates will be outstanding. One embodiment of the program calculates three (3) profit and loss statements: one for a sinking fund bond issue, one for a balloon payment issue, and one for a sales certificate issue. The user, e.g., the underwriter, is then able to compare the firm's cash flows under the three alternatives. The web site can come in a variety of forms as will be obvious to those of skill in the art. For example, the web site may present only two profit and loss statements: one for a sinking fund bond issue and one for a sales certificate issue as illustrated in FIGS. 4A and 4B.

Finally, if the Underwriter wishes to go ahead and file the proposed issue with the SEC, the underwriter supplies the names of the Registrar and Trustee, as previously arranged, together with their fee scale, and requests appropriate forms. In one embodiment, the program accessed via the web site generates appropriate forms, the blank versions of which may have been pre-approved by the SEC. The completed forms include the information input by the underwriter and the results of calculations made there from. The resulting forms can be in a PDF format that cannot be altered. The Underwriter can then review them, add the Issuer's Financial History, Description of Business and relevant Ownership and Officer information along with an Opinion of Counsel and file the combined package with the SEC.

DESCRIPTION OF PROFIT & LOSS STATEMENTS IN FIGS. 4A AND 4B

-   Line 1, Sales: This is the Sales figure input by the Underwriter,     grown annually by the Sales Growth Rate input. (or as input by the     Underwriter by year/quarter or month) -   Line 3, Participation Payment: Calculated using the result in the     Required Percent of Sales calculation times the sales figure for the     relevant year. -   Line 4, Operating Costs: Calculated using the Underwriter's assumed     Operating Margin times the sales figure for the relevant year. -   Line 5, Operating Profit: Sales minus Participation and Operating     Costs -   Line 6, Interest on Debt: The interest payment required to service     the Issue Amount outstanding should the Issuer have used debt to     generate the Issue Amount. -   Line 7, Net Before Taxes: Operating Profit less Interest on Debt. -   Line 8, Taxes: The taxes owed using the Tax Rate supplied by the     Underwriter. -   Line 9, Profit: Net Before Taxes less the Taxes -   Line 10, Debt Repayment: The amount paid to retire the Issue Amount     should the Issuer have used debt to generate the Issue Amount -   Line 11, Cash Flow: Profit less the Sinking Fund (Debt Repayment) On     the right hand side of the statement we calculate the Present Value     of the Cash Flow for comparison purposes.

The profit and loss statement for the sales certificate accounting shown in FIG. 4B assumes that accounting rules allow the issuer to pay its sales participation obligations out of pre-tax sales/revenue. In the event that accounting rules do not allow the issuer to do so, one would change the profit and loss statement accordingly.

With reference to FIG. 5, a system 300 for executing a program accessed via the web site of FIG. 4A and/or via a non web-based system includes a bus or other communication channel 302 for communicating information between components of the system. The system 300 further includes a processor 304 coupled to the bus 302 and a main memory, e.g., a random access memory (RAM) or other dynamic storage device 306 also coupled to the bus. The RAM stores instructions for execution by the processor 304. The main memory can also store temporary variables. The system can include a mass storage device 316 coupled to the bus 302 for storing information that is not accessed as regularly as information stored in RAM.

System 300 can include a display 308 for displaying information and input devices such as a cursor control device 312 and a keyboard 310 for allowing a user to input data. The system can further include a communication device 314 for communicating with other systems, e.g., a client.

An implication of the invention is that certain non-profit institutions may be able to access capital markets at discount rates heretofore available only to growth companies. In other words, since non-profits by definition are not profit oriented, non-profits have been hindered in obtaining access to capital markets to the extent that such access is dependent on producing profits. Financial products according to the present invention may make non-profits that have expected growth in sales/revenues an attractive investment and thus provide access to capital at appealing discount rates for those non-profits. Thus, organizations including non-profits and firms can benefit from embodiments of the invention.

Having thus described embodiments of the invention, various alterations, modifications and improvements will readily occur to those skilled in the art. Such alterations, modifications and improvements are intended to be within the scope and spirit of the invention. Accordingly, the foregoing description is by way of example only and is not intended as limiting. The invention's limit is defined only in the following claims and the equivalents thereto. 

1. A method for creating a financial product comprising: providing standard forms and terms to an issuer and to investors, the terms to the issuer including providing capital to the issuer in exchange for a return that is a function of future sales of the issuer over a specified period of time, the terms to the investors being non-negotiable, the capital provided to the issuer being provided by investors investing in the financial product; arranging for the creation of instruments representing investment in the financial product, in sufficient numbers and in appropriate denominations to facilitate trading, said trading helping to provide liquidity in the underlying financial product; and setting the function of sales using at least one of historical and expected growth rates for sales and using an appropriate discount rate; and wherein arranging for the creation of instruments comprises creating the instruments in appropriate denominations such that the instruments are tradable securities given the then-current market conditions.
 2. The method of claim 1, wherein the specified period of time is between about 1 year and about 12 years.
 3. The method of claim 1, wherein the issuer is an organization and wherein the future sales that are the subject of said terms are at least one of the future sales of the organization, the future sales of a subsidiary of the organization and the future sales of a division of the organization.
 4. The method of claim 1, wherein the issuer is a combination of organizations that have combined to sell claims on their joint future sales.
 5. The method of claim 1, wherein an appropriate discount rate is a discount rate that is mutually agreed upon by the issuer and investors in light of prevailing market conditions.
 6. The method of claim 1, wherein the function of future sales is a trivial transformation of future sales.
 7. The method of claim 1, wherein the function of future sales is a linear function.
 8. The method of claim 1, wherein the terms to the issuer include providing capital to the issuer in exchange for a return that is a function of future sales over a specified period of time and for a security that expires worthless at maturity.
 9. The method of claim 1, wherein information about the issuer's obligations pursuant to said terns is capable of being generated at a low-cost relative to obtaining information about any one of (i) a residual equity claim, (ii) a borrower in a conventional commercial loan context, and (iii) a debt issue.
 10. The method of claim 1, wherein the terms to the issuer include providing capital to the issuer in exchange for a percentage of future sales over a specified period of time.
 11. The method of claim 10, wherein the percentage of future sales is between about 1% and about 10%.
 12. The method of claim 10, wherein the cumulative percentage of future sales based on more than one issue is not substantially greater than 10%.
 13. The method of claim 10, wherein the value of the issue exceeds about $1 million.
 14. The method of claim 1, wherein the terms to the borrower include providing capital to the borrower in exchange for a return that is a function of future sales over a specified period of time and for a security that expires worthless at maturity.
 15. An electronic data processing method for preparing to register a sales participation based offering, the method comprising: receiving information regarding the amount of an issue desired by a potential issuer; receiving sales information related to current sales and to sales growth rate for the potential issuer; receiving discount rate information for the issue; and calculating a function of future sales appropriate to service the issue; wherein calculating a function of sales appropriate to service the issue comprises determining a percentage of future sales that is to be paid to investors such that the probable total amount paid to the investors discounted to present value is substantially equal to the investment.
 16. The method of claim 15, wherein the function of future sales is a percentage of future sales.
 17. A method for creating a financial product comprising: providing terms to a borrower and to investors, the terms to the borrower including providing capital to the borrower in exchange for a return that is a function of future sales over a specified period of time, the terms to the investors being non-negotiable; arranging for the creation of instruments representing investment in the financial product in sufficient numbers and in appropriate denominations to facilitate trading so as to help provide liquidity in the underlying financial product; and setting the function of sales using at least one of historical and expected growth rates for sales and using an appropriate discount rate; and wherein arranging for the creation of instruments comprises creating the instruments in appropriate denominations such that the instruments are tradable securities given the then-current market conditions.
 18. The method of claim 17, wherein the specified period of time is between about 1 year and about 12 years.
 19. The method of claim 17, wherein the borrower is an organization and wherein the future sales that are the subject of said terms are at least one of the future sales of the organization, the future sales of a subsidiary of the organization and the future sales of a division of the organization.
 20. The method of claim 17, wherein the borrower is a combination of organizations that have combined to sell claims on their joint future sales.
 21. The method of claim 17, wherein an appropriate discount rate is a discount rate that is mutually agreed upon by the borrower and an underwriter in light of prevailing market conditions.
 22. The method of claim 17, wherein the function of future sales is a trivial transformation of future sales.
 23. The method of claim 17, wherein the function of future sales is a linear function.
 24. The method of claim 17, wherein information about the borrower's obligations pursuant to said terms is capable of being generated at a low-cost relative to obtaining information about any one of (i) a residual equity claim, (ii) a borrower in a conventional commercial loan context, and (iii) a debt issue.
 25. The method of claim 17, wherein the terms to the borrower include providing capital to the borrower in exchange for a percentage of future sales over a specified period of time.
 26. The method of claim 25, wherein the percentage of future sales is between about 1% and about 10%.
 27. The method of claim 25, wherein the cumulative percentage of future sales based on more than one issue is not substantially greater than 10%.
 28. The method of claim 25, wherein the value of the issue exceeds about $1 million. 